Forget about Dogs of the Dow. I want to own the Dogs of January.
With each passing day, I am becoming more and more confident in my forecast of a 10% gain in the major market indexes in 2014.
The selling in January might be nerve-wracking, but it took what little froth there was in the market out of the equation.
In other words, we are experiencing a normal and very healthy pull-back. Don’t let the fear-mongers prevent you from missing out on what ultimately will be another year of solid gains for equity investors.
Jeremy Siegel sums it up perfectly by stating that those most screaming about a bubble in any asset class are the ones that never owned that class to begin with. How right he is!
How many investors missed out on the run in 2013?
I know some very serious hedge fund managers were clocked by being too pessimistic last year. In fact returns in the entire hedge fund complex last year were pathetically lacking.
To make up for that missed opportunity, they have been using the turn of the calendar to promote their bearish case. The problem is there is no real reason to be bearish.
Stocks at worst are fairly valued and the economy in the U.S. is poised to grow solidly in 2014. More importantly, there is none of the excess that typically results in a bear market sort of freefall.
As such, it would make sense to be a buyer in the wake of selling here in late January. A good place to find what stocks to buy would be those dogs of January – the dogs that can still bark.
These stocks are being thrown out for no particular reason and yet growth prospects remain. That to me is the formula for investing success.
Here then are three dogs of January to consider buying today:
One of my favorite sectors right now is the homebuilding market. Shares of KB Home (KBH) exploded higher on Tuesday by nearly 10% after a stellar earnings report. The spring selling season is likely to be quite strong.
Interestingly, chemical company DuPont (DD) mentioned in its earnings report an expectations of 20% growth in housing in 2014.
Mohawk Industries (MHK) is primed to benefit from strength in housing. Even before January this stock was cheap relative to expected profit growth. Today it is 5% cheaper. Analysts expect the company to grow profits by 27% in 2014. At current prices shares trade for 17 times 2014 estimated earnings. Mohawk is an easy January dog to buy during this recent pullback.
There hasn’t been a January effect rally in shares of Ply Gem (PGEM). In fact, it has been quite the opposite. Shares are down a whopping 25% during the month. For a stock I rated as on of the Top 10 Sizzling Stocks, such a move is painful, but not disastrous. Sizzling Stocks are meant to be held for the duration of the year and we have 11 months to go. Small-cap stocks like Ply Gem can move sharply one direction or the other.
The reason for the decline at the start of the year was a Wall Street downgrade. JP Morgan took the stock to Neutral from Overweight, citing near-term operating challenges. Really what triggered the downgrade was preliminary fourth-quarter sales that were lower than what the bank expected. For a small-cap stock, such a misstep can be overly penalizing and that is what happened to Ply Gem.
Thinking a bit longer-term, a strong housing market this spring can turn this stock around on a dime. I liked the stock a lot in before the year started. I absolutely love Ply Gem today!
Small-cap medical device company Cardiovascular Systems (CSII) is down 15% in January – on absolutely no news. That’s right, not a thing has changed from the end of the year to today and yet this stock is down 15%.
Give me a break. If you want to make money this year, do yourself a favor and grab some shares of this one. The company did a secondary offering at about these levels. Buyers then did so for the opportunity to double their money.
Cardiovascular Systems received important approvals for its medical device product to be used in the U.S. That product serves a monster market. Sales are likely to grow and grow fast. Or even better, this company could be sold to a larger medical device company that can maximize sales. Whatever transpires, the stock should recover that lost 15% and then some before the end of the year. Cardiovascular Systems is an easy 20% gainer from here, in my opinion.